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FMCG: Itís all about advertising - Views on News from Equitymaster
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FMCG: Itís all about advertising
Jun 25, 2008

FMCG companies hiked their spend on advertising during the last fiscal. Further, they all have announced higher ad spends in the current year. Most of the FMCG majors spend on an average between 12% and 15% of sales on advertising. A question arises then, on why FMCG companies are spending millions of rupees on advertising, which is affecting margins to such a large extent. If ad costs are ignored, the margins improve drastically.

GSK Consumers GCPL HUL Dabur Nestle Colgate
Total sales 65,320 43,724 734,715 91,783 159,533 67,441
5 year CAGR growth 10.4% 47.5% 6.2% 13.8% 12.1% 9.2%
Total ad spends 7,095 4,238 61,384 11315 8,654 11,311
5 year CAGR growth 13.8% 6.1% 11.1% 13.1% 2.7% 6.8%
% of sales 10.9% 9.7% 8.4% 12.3% 5.4% 16.8%
OPM (avg) 9.6% 18.3% 10.3% 13.3% 11.8% 16.3%
OPM (avg excl ad spends) 20.4% 22.4% 18.6% 25.7% 17.3% 19.2%

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